It's never too late to attempt to protect your families' hard earned assets even after someone enters a nursing home. One tool that works extremely well is known as a Medicaid Annuity. This vehicle is used in many states where it is not a consideration to qualify for medical assistance when your loved one is permanently placed in a nursing home. This planning technique will not work in states known as Income Cap States where those states prohibit the use of immediate annuities.
In states like Maryland, if there is a healthy spouse known as the community spouse, the immediate annuity can be employed to protect all of the families' assets. Under the Medicaid rules, the primary residence, automobiles, and up to approximately $119,000 can be protected for the benefit of the healthy spouse. The family can elect to prepay both spouses' funerals as well as all of their outstanding debts. The spouse in the nursing home known as institutional spouse can retain somewhere between $2000 and $2500. All other assets are deemed to be eligible resources and subject to being spent on the institutional spouse's long term care stay. In states like Maryland, the liquid assets above and beyond the $121,000 level can be used to purchase what is known as a Medicaid Annuity. By way of example, if your parents had $400,000 of liquid assets then $279,000 could be utilized to purchase an immediate annuity.
An immediate annuity is an investment product that is normally purchased from an insurance company. In this example, the $279,000 is paid to the insurance company in return for an agreement to repay the funds plus interest over the shortest period possible with interest. If the spouse lives for five years, the state will have no claim against the annuity since it has been paid in full to the community spouse. If the spouse dies during the five year payout, then the state must be named as the primary beneficiary so they can be repaid for the payments they have made for the institutional spouse's long term care needs. After the State has been paid in full should any funds exist in the annuity, the funds will be paid directly to the named beneficiaries designated therein.
The reason that the immediate annuity is not counted as a resource under Maryland Medicaid law is because the assets have been converted into income for Medicaid purposes which is a protected category. Keep in mind that transfers between spouses are not subject to a Medicaid transfer penalty under the terms of the five year Medicaid look back rules. There is also no gift tax liability for transfers to spouses who are US citizens.